At expiration, the contracts physically deliver into an OTC interest rate swap cleared by CME Clearing, with the long position holder becoming fixed rate receiver and the short position holder becoming fixed rate payer
The fixed rate payer will immediately sell the commodity to broker 2 to generate cash.
In brief, the fixed rate payer buys commodities every three months, sells them to the floating rate payer who onward sells them immediately and pays the fixed rate payer the cost of the commodities plus the fixed rate payers profit on the sale, which is linked to a floating rate formula.
There is, however, the uncertainty of the profit paid to the fixed rate payer.
This is due to the fact that no sooner has the fixed rate payer bought the asset, it is sold to the floating rate payer and onto the floating rate payer's agents.
In substance under the profit swap, all that is essentially happening is that a floating rate payer is paying LIBOR and a fixed rate payer is paying a fixed amount.
6) Strictly speaking, the contract would call for the exchange of the difference between (1 + [pi])H(n) and S(n): the fixed rate payer
would pay (1 + [pi])H(n) - S(n) if (1 + [pi])H(n) - S(n) > 0, and the floating rate payer would pay S(n) - (1 + [pi])H(n) if (1 + [pi]H(n) - S(n) < 0.
Floating rate payments by the dealer will ideally offset the issuer's variable-rate debt exposure such that the issuer is, as a consequence of the debt issuance taken together with the swap, a net fixed rate payer
GHS has one outstanding swap, a $30 million fixed rate payer
swap with a termination date of May 1, 2015.
6 million and granted the counterparty, JP Morgan Chase, an option to require the Authority to enter into fixed rate payer
swaps in connection with the variable rate refundings of the bonds.
Payments of interest and principal will be based on the COP Fixed Rate Payer
Calculation Amount (COP 49,000,000,000), converted into USD at the then-prevailing value of the COP/USD exchange rate, as per the governing documents.